By Carlos Bicheiro, partner at FALCONI
Major transformations are taking place in all segments of people’s lives, not only in economic, political, technological, cultural and social-environmental aspect, but also in terms of behaviors, beliefs and values, work relationships and corporate structures.
In our national scenario, we have the difficulties posed by the current economic crisis are worsened by a confidence crisis in the economy, the questioning of decisions made by boards and lack of credibility in the performance of the role of board member and inadequate investments made by pension funds, in addition to corruption scandals, which are responsible for substantially decreasing the value of large-sized companies – due to investigations involving their executives. All these elements are reflected in the culture of organizations and lead to the search for better governance practices.
How do we survive in this competitive, globalized and now turbulent environment, generating a concept of credibility in terms of the company’s brand and its managers? How do we properly meet the ethical and transparency needs imposed nowadays by society with more rigidness and conviction? How do we stand out in a scenario such as this, generating wealth, attracting capital and ensuring perpetuity? How do we preserve the success achieved when everyone is connected through social media, with reputations that have been built in decades being corroded within minutes?
Decisions that may seem to result in savings and profitability in virtually no time may generate effects that – in the medium and long run – end up being extremely dangerous. For instance, is a company stops investing in a safe system for treating waste and failures occur in a given stage of this treatment, causing contamination and damages to the environment, those apparent savings in the short run end up bringing losses that are much larger that the million-dollar fines and environmental recovery measures: the company’s own survival is at stake. These events may be prevented through good practices of corporate governance.
Then how can we have a solid governance and management system which allows us to generate wealth and at the same time mitigate potential risks to the business and the organization’s image, assuring its perpetuity? The answer lies in five principles defined by the Brazilian Institute of Corporate Governance (IBGC), which act as the true pillars of corporate governance:
1. transparency – constant communication practices, the premise of which being truth and ethics in all decisions and actions carried out by the company in order to set – both internally and for external audiences – an atmosphere of trust that adds value to the business;
2. equity – equal and fair treatment of all interested parties, whether these are investors, clients, suppliers, collaborators, etc., with well-defined authority and clear responsibilities;
3. rendering of accounts – executives and all other governance agents must render accounts of their activities to those who selected them, responding for all actions and events under their responsibility;
4. compliance – in all its practices, the organization must observe laws and regulations, fully complying with the regulations that govern its business activity;
5. corporate responsibility – with a more comprehensive view, governance agents must carry out all of their activities so that they can generate sustainable wealth.
If we are talking about perpetuity and survival, we need to look towards the future and define where we want to go to; we need to have a good understanding of the company’s strategy, the changes and the trends in our business segment so that we can plan the entire outline of the organization around this strategic positioning.
This forward-looking vision must be translated into clear, well-defined and measurable objectives, which shall spread throughout the organization, guiding the responsibility held by each agent in terms of governance.
Governance encompasses multiple perspectives, such as family, property and business – three universes that co-exist and need to be connected by the same values and beliefs so they can all move forward together, each one with its own function and purpose. When looking at property, investors wish to see things such as preservation of property, investment capacity and assurance of perpetuity.
When it comes to business, its essential function is to generate sustainable wealth; as for family, the main goal is to preserve its unity, so that problems do not compromise the business, in addition to clearly define the role performed by the family with a program for succession and development of heirs that takes into account the property aspect as well as the company’s professionalization.
It is essential that the people responsible for the direction of the organization understand the trends of this extremely competitive, turbulent, changing and fast-paced environment in which we live today, as well as the competencies required to generate sustainable wealth with more capital and knowledge, maximizing returns on investments and minimizing risk levels.
All of this is completed in management rituals, converging towards the company’s strategy. Clear participation, from the lowest level of corporate hierarchy to the Administration Board, and well-defined controls enables the confirmation – through precise goals – that each one is fulfilling their roles. This is the only way we can have a system that is capable of assuring sustainable, permanent, continuous and lasting growth – which is the ultimate objective of this corporate governance model.
Text published in the October 2016 edition of O Papel magazine.